Investing Tips Information

Investor mistakes happen and the big ones can kill you financially. If you lose half of your money, you need to double what you have left to get back to break even. Here we discuss the major investor mistakes, not the obvious.

Call the following rules investing basics, or simply investor mistakes to avoid. The sorry thing about these investor mistakes is that some financial planners I have known not only embrace them, but they use them as sales tools, so beware.

Never play “catch up”. For example, your financial planner reviews your progress and finds that you are not on track to reach your retirement goals. Even though you are a relatively conservative investor he recommends investing heavily in aggressive stock funds to earn a higher return. The stock market tanks, and your dreams of early retirement go down the drain. This course of action goes against sound investing basics. Unfortunately, in 2008 and early 2009 too many investors made this major investor mistake.

Averaging down on a stock is an investor mistake, and an old sales tool used by some stock brokers to work a client for commissions. Your broker calls and suggests buying stock in XYZ Financial at $10 per share. XYZ sold for over $40 less than a year ago. You buy 1000 shares and the broker makes a commission. Two months later he calls back when XYZ is selling for $5. The broker exclaims that if XYZ was a good buy at $10 it’s a great buy at $5. You buy 2000 more shares, and he makes a commission.

When XYZ hits $2 your man pimps you again, because at $2 XYZ is the opportunity of a lifetime. You buy 5000 more shares, he makes yet another commission and soon after XYZ goes broke. You lose every penny you had invested. You made a major investor mistake and violated one of the rules of investing basics. If XYZ was a good buy at $10 and $5, why did it then go to $2, and end up broke?

Do not believe that higher interest rates are good for investors. Savers may benefit, but investor mistakes in times of rising interest rates can be costly. Bonds and bond funds will fall in value, and often times stocks and stock funds as well.

Do not believe that you have nothing to worry about if your investment portfolio is diversified. You are diversified if you own several stock funds, but in a bad stock market they will likely all be losers. For much of 2008-2009 there was virtually no good place for average investors to invest and make good returns. Investors lost lots of money, diversified or not, even if they understood investing basics.

Paying ongoing fees for service, or for timing services, is often an investor mistake. For example, you roll your $200,000 retirement plan into an IRA through a financial professional. He puts you into various mutual funds from various fund families. In addition to sales charges of almost 5% and yearly fund expense of over 1%, you are also charged a yearly service fee of 1 1/2%. That amounts to $3000 the first year and grows with the value of your account. Be careful what you sign, these extra fees are not necessary.

In regard to paying for timing services, this is almost always an investor mistake. Very few market timing services have a good long-term record for timing the stock market.

The last of our investor mistakes to avoid: don’t complicate your life by getting disorganized. You may have had numerous employers and retirement plans. Now you have your money scattered about and have lost control. Consolidate by rolling these retirement funds into an IRA with one or two major mutual fund families. You will be able to access your accounts and get service no matter where you live.